Boeing hasn’t hit bottom yet. Neither have suppliers.

By Scott Hamilton

Analysis

Jan. 15, 2020, © Leeham News: The extent of the damage to Boeing from the 737 MAX crisis still is unfolding.

Billions of dollars in new costs and charges are expected to be announced on the 2019 earnings release and call, Jan. 29.

But the long-term effects, only surmised until now, are beginning to become evident following information obtained by LNA from multiple sources.

  • Restarting production will be at a low initial monthly rate.
  •  Ramp to previously targeted 57/mo likely lags by three years.
  • The impact on suppliers will be profound.
  • Impact on employee retention is unknown.
  • 737 backlog delivery schedule will require major adjustments.
  • Airbus stands to benefit from Boeing’s extended lower production rate.
  • New airplane years away—even as it’s needed for Boeing’s future.
  • Lower 737 production rate reduces cash flow; 787 rate reduction will hurt, too.

Boeing hasn’t hit bottom yet. The worst is yet to come for suppliers.

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MAX delivery process will be slowed by FAA’s fewer resources

By Scott Hamilton

Jan. 14, 2020, © Leeham News: Boeing likely faces an extended timeline to clear its inventory of 400 737 MAXes. LNA estimates it will be well into 2022 before these new-production airplanes are delivered to customers.

The new timeline is based on LNA discussions with key people and our analysis. Boeing won’t comment. Wall Street analysts so far haven’t significantly shifted their forecasts of 3Q or 4Q2021.

The decision last year by the Federal Aviation Administration to assume responsibility to certify each Boeing 737 MAX before delivery is key to LNA’s estimate.

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Embraer’s challenges

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By Vincent Valery

Introduction  

Jan. 13, 2020, © Leeham News: It is no exaggeration to say that 2020 is a pivotal year for Embraer. Whether the tie-up with Boeing materializes will determine its future.

As crunch time approaches for the creation of Boeing Brasil, LNA thought it relevant to study the company’s financial records since 1999. This is another in a series of financial analysis of leading aerospace companies and airlines.

From humble beginnings, the company achieved a dominant position in the regional market with the E-Jet family. After a slump in defense and security business revenues in the early 2000s, the company undertook significant programs. It also entered the business jet market to diversify its revenue streams.

So far, E2 E-Jet sales have been tepid. After years of significant development spending, the Commercial aircraft division is just above red ink, the Defense and Security division isn’t profitable and the Business jets are not adding anything to the bottom line.

Regardless of whether the tie-up with Boeing materializes, Embraer will have to take major strategic decisions, especially in the Commercial Aviation division.

Summary
  • From government project to world-class OEM;
  • Profitability challenges;
  • (Not so) diversified revenue sources;
  • Plans with Boeing;
  • And without it.

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Pontifications: Boeing Board needs major shake-up

Jan. 13, 2020, © Leeham News: Today is David Calhoun’s first day as the president and CEO of The Boeing Co.

To say that he’s got his work cut out for him is an understatement.

By Scott Hamilton

I’ve put together a list below, which probably is only half of the important tasks at hand. Most of this list is obvious and doesn’t need any additional reporting because of all the coverage in 2019.

This column is focused on another task that should be, and in the view of many, must be done.

Boeing’s Board is preoccupied with the MAX crisis, but on the theory it can do more than one thing at a time, it need to also turn its attention to some introspection.

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Guest Column: Boeing’s Calhoun: Fantastic 9-month CEO or disastrous multi-year CEO?

  • Jan. 12, 2020: David Calhoun assumes his position as president and CEO of The Boeing Co. tomorrow. Richard Aboulafia of The Teal Group has some thoughts about this move.

By Richard Aboulafia

Richard Aboulafia

Vice President of Analysis

The Teal Group

Guest Column

December 2019

Dear Fellow C-Suite Watchers,

Person of the year awards go to people who did something noteworthy in the past year. Instead, why not appoint a person in advance, for the year ahead? That’s more exciting, since that person has yet to do the something for which he or she is being recognized. Incoming Boeing CEO Dave Calhoun is the perfect recipient of this, for the choice he will make. In 2020, he will choose either to be a fantastic nine-month CEO, or he will stay on, becoming a potentially disastrous multi-year CEO. This is a pivotal decision for Boeing, and for the industry.

Calhoun is replacing Dennis Muilenburg because the latter CEO’s year has been disastrous. The company’s communications with Congress, the FAA, international regulators, airline and lessor customers, suppliers, the victims’ families, and pretty much the entire outside world were a master class in bad crisis management. This month’s 737MAX line shutdown, with no guidance at all provided to suppliers, was the final swirl in a downward spiral. The company’s legal department chief, another key player in Boeing’s MAX strategy, has also departed.

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Bjorn’s Corner: Why e in ePlane shall stand for environment, Part 4.

January 10, 2020, ©. Leeham News: We continue our series why e in ePlane shall stand for environment and not electric.

Before we continue the discussion about low CO2 footprint propulsion opportunities we look into some of the distributed propulsion concepts proposed for electric/hybrid airliners.

In this and the next Corner, we examine the substance in claimed aerodynamic gains and increased efficiency from such concepts.

Figure 1. The Ampere distributed propulsion concept as presented by ONERA. Source: ONERA.

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To what level can Boeing’s remaining cash cow, the 787, pay the company bills?

By Bjorn Fehrm

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Introduction

January 9, 2020, © Leeham News: What a difference a decade made. In January 2010, the Boeing 787 Dreamliner had just made its much delayed first flight and its crisis was at its deepest. The aircraft would soon be more than three years late and its costs had more than doubled. One questioned if it would ever be a profitable program and how deep this money pit would drag Boeing?

Today, 10 years later, the 787 is Boeing Commercial Airplane’s sole cash cow, with a 737 MAX which can’t be delivered, the 777 in difficult migration to 777X and the 767 freighters just hanging in there profitability-wise.

But how profitable is the 787, eight years after its first delivery and coming from very red numbers? We look behind Boeing’s accounting rules to find how much of the company bills can be paid by Dreamliner profits when other programs can’t contribute.

Summary:
  • Boeing uses US Program Accounting rules that allow production cost swings to be shuffled between the beginning and the end of an aircraft program.
  • This presents nice quarterly profits in the program’s early days when there are actual losses but it comes around making mature aircraft programs less profitable than programs using international accounting rules where profits are calculated for each delivered aircraft (Unit based accounting).
  • We go behind the Boeing quarterly figures to analyze how profitable the Dreamliner is over the next years, now when it needs to shoulder the cash cow mission for a wounded company.

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Areas of investigation for Ukraine Airlines crash

By Scott Hamilton

Commentary

Jan. 8, 2020, © Leeham News: Some news reports of the Ukraine Airlines crash yesterday in Tehran linking the event to the Boeing 737 MAX crisis are irresponsible.

Ukraine Airlines Boeing 737-800. Source: Wikipedia.

The Ukraine airplane is a 737-800, a highly reliable aircraft with thousands in service around the world.

Drawing any conclusions about the crash at this stage and under the unique circumstances of open, armed conflict in the region is also irresponsible.

None of the news reports LNA has seen so far indicates possible radio communication from the pilot. The flight and voice recorders apparently have been recovered, but no information has been released of what information these contain. It’s unlikely any information has been downloaded at this point.

Here’s what investigators routinely consider in a crash investigation:

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Exclusive: Boeing, internally, sees production halt at least 60 days

By Scott Hamilton

Jan. 7, 2020, © Leeham News: Boeing internally sees production suspension of the 737 MAX of at least 60 days, LNA has learned.

The last inventory MAX fuselages entered final assembly this week and will roll out of the factory shortly.

Then, production is suspended. Boeing publicly has not said how long the suspension will last and it’s unclear how much information has been passed down the supply chain. Without knowing when the FAA will recertify the MAX, Boeing can’t truly gauge when production will resume.

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Air India’s Rupee bottomless pit

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By Vincent Valery

Introduction  

Jan. 6, 2020, © Leeham News: Air India lost more than $1bn in the fiscal year 2018-19. After years of heavy financial losses, the Indian government is mulling another privatization attempt.

The current Air India is the result of the 2007 merger with another publicly owned airline, Indian Airlines. The Indian flag carrier owns several subsidiaries, including two operationally separate airlines, and a hotel chain.

One would a priori think that the sustained losses are mainly the results of a bloated cost structure. LNA went through Air India’s financial statements since the fiscal year 2007-08 to see whether that is the case.

The root causes of Air India’s chronic losses will make the latest privatization attempt challenging to execute for the current government.

Summary
  • A complicated history and structure;
  • Strategic decision and competition drag company down;
  • Not only a cost problem;
  • Lessons from a failed privatization attempt.

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